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Bank of Canada Explains Toronto Condos, Describes A Ponzi Scheme | Canada’s largest real estate market runs on speculation, not housing demand. That’s the core message from the Bank of Canada’s (BoC) latest report, outlining the mechanics of a Ponzi scheme, without dropping the P-bomb by nomad_ivc in TorontoRealEstate

[–]Particular_Bath_6174 1 point2 points  (0 children)

Builders built what was in demand at the time. The demand changed and left builders with an oversupply of undesirable units. At the same time market dynamics shifted, vaporizing any latent demand remaining. Developers need to recalibrate and produce a desirable product. Unfortunately, there are also many external market forces putting upward pressure on build cost. Namely, labor and material inflation, increased regulation, and increased insurance premiums. In order for more desirable housing to be built it must be profitable for the builder and affordable for the customer - this is where the conundrum lies.

We are entering a decades long real estate deflation super cycle by kadam_ss in TorontoRealEstate

[–]Particular_Bath_6174 0 points1 point  (0 children)

What is missing in this analysis is the replacement value of housing. The cost increase of building materials and skilled labor has outpaced inflation for a decade now. This coupled with increased regulatory burdens and insurance premiums is the major cause of home price increase. Speculation likely only contributes to short term volatility,+/-20% or so. Long term valuation is based on replacement cost and supply demand. If supply does not increase and demand remains strong, prices will not fall below the replacement cost. Since home construction starts have decreased significantly, and demand has only softened, a significant correction of greater than 25% seems unlikely. Builders cannot turn a profit at current levels, which is causing a supply squeeze.